The Ultimate Guide to Car Rental Insurance in Iceland

Ever had your car break down on the side of the road? It’s not an uncommon occurrence. You see broken-down vehicles with flat tyres and other issues pulled over to the shoulder all the time. 

When this occurs in your home town or even just your home country, the problem is usually pretty quickly resolved. You just call your insurance company or roadside assistance service and they help you get back on the road again, quickly.

But what do you do when this happens in a foreign country? Suddenly, you’re somewhere where you don’t know the language all that well, you don’t know the customs, you don’t know anyone. You’re not sure who to call or what to do. Worst yet, you’re in a rental car, so now this breakdown is going to cost you a ton of money. No more holidays for you this year.

It doesn’t have to be this way, though. With the right preparation, the right car rental and the right insurance, you can have an excellent trip, even if the unexpected happens. Here’s everything you need to know about renting a car in Iceland and purchasing the proper insurance to keep you protected along the way. 

What’s the Big Deal? What are Really the Risks When Driving in Iceland?

Think you don’t need rental car insurance while in Iceland, because, after all, what’s the worst that can happen? Think again. Iceland’s dramatic landscape is one of its biggest draws for tourists, but this same landscape can also prove very damaging to vehicles. 

When renting a car in Iceland, you’ll have to watch out for damages caused by…

• Loose gravel or stones hitting your car
• Sand or ash being blown onto your car and damaging the paint
• Rough roads or snow and ice damaging the undercarriage 
• Wind damaging the doors (it’s not at all uncommon for strong wind bursts to push open car doors beyond their limits)
• High water getting into the engine or other parts
• Wild animals causing obstructions on the roadways 

Beyond all this, you also, of course, have the normal risks of driving anywhere in the world, including at home, such as collisions, theft and general breakdowns. 

In the event that any of these risks become your reality, you’ll want to have the proper Iceland car rental insurance, to keep you covered. 

What Types of Iceland Car Rental Insurances are Available? What Does Iceland Car Rental Insurance Cover?

When shopping for your Iceland car rental insurance, you’ll come across a few different options.

TPL and CDW Insurance in Iceland 

There are two types of insurance that are almost always included in your Iceland car rental’s basic cost. You won’t need to pay extra for both a collision damage waiver, or CDW, or for third-party liability insurance, or TPL. 

The collision damage waiver covers costs from collisions but usually includes a deductible or self-excess. That means you’ll have to pay a certain amount of the fees for fixing the damages caused by the collision. However, it’s worth noting that a CDW will not cover damages caused by certain types of collisions or other factors. For example, the insurance will not cover damages caused by…

• Negligence
• Driving while intoxicated
• Damage to tyres, headlights, windshield and undercarriage
• Damages caused by wind
• Damages caused by sand and ash storms
• Damages caused by driving into water

The third-party liability insurance that’s typically included in your base Iceland car insurance cost will pay for another driver’s cost of damages in the event of a collision. The amount due during these events is dictated by Icelandic law. 

Other Iceland Car Insurance Options 

There are other Iceland car insurance options that are available for an additional fee, beyond the base fee that includes CDW and TPL insurance. 

- Super Collision Damage Waiver (SCDW)

A super collision damage waiver is basically an extended version of your collision damage waiver. If you purchase the “super” version, it just means that you’ll have to pay less overall for any damage costs. Additionally, this version also covers the costs of any injuries to any vehicle passengers, as well as the driver. 

- Theft Protection (TP)

Theft protection insurance covers you in the event that the vehicle is stolen, but not if items from within the vehicle are stolen.

- Gravel Protection (GP)

Gravel protection protects you from gravel damage that occurs to the windshield, headlights, bonnet, front fender and other areas of the car. 

- Sand and Ash Protection (SAAP)

Sand and Ash Protection insurance is pretty unique to Iceland and covers your vehicle from damage related to volcanic ash and sandstorms. It’s not uncommon for wind to whip up Iceland’s ash and sand, causing damage to vehicles, which can become quite costly. 

Lava Car Rental offers all of the above insurances, to help keep you safe during all of your travels around the island. You can see our full lineup of insurance offerings ahead of your Iceland trip, here. 

Other, Less Popular Iceland Car Insurance Options

There are other Iceland car insurance options, but these aren’t quite as popular as the insurances listed above. Still, some are quite necessary while travelling around Iceland. 

- Tyre Protection (TIP)

Tyre Protection covers you if you get a flat tyre.

- Window Protection 

This obviously protects you in the event of window damage.

- Door Protection 

Door protection for any door damage is actually pretty handy while in Iceland. Strong wind gusts frequently damage doors that are left open, when travellers get out of the car to snap a quick picture, without closing it behind them. Even just not paying attention when opening your door can lead to damage caused by these wind bursts.

- Animal Encounter Protection

Wild animals such as sheep are all too common on Iceland’s roads, so Animal Encounter Protection can protect you in the event of a collision, or in the event that some wayward animal comes by and scratches your car, for example. 

- Towing Services Protection

If your engine dies or you’re in an accident, or if you get stranded in a river crossing, or in the Icelandic sand or lava rock, you’re going to need towing services, which isn’t that cheap if you pay for it separately. Towing service protection can help mitigate some of the costs. 

What Does Iceland Car Rental Insurance Not Cover? 

But no matter how good your insurance is, there will always be some damages that your insurance just won’t cover. These include damages caused by…

• Negligence
• Driving while intoxicated
• Damage to the undercarriage of the car
• Damages caused by driving into water

Iceland Car Rental Insurance Lingo: Self-Excess 

When shopping for your car rental insurance while in Iceland, you’ll hear one term used quite a lot: self-excess. Also sometimes referred to as the deductible, driver’s liability or self-risk, the self-excess is the amount that you’ll have to pay if something happens to your Iceland rental car during your trip. 

So let’s say your car is damaged or even stolen. In most cases, the car rental company will cover a certain amount, and then they’ll charge you a certain amount as well. The “excess” is the amount that they’ll charge you. 

Do note, that the excess is the limit to how much the company will charge you, not the total in all instances. For example, if your rental terms include an excess of $1,000 (€888), but the damage costs are only $300 (€266), you just have to pay the $300 (€266). If, however, the damage costs are $2,000 (€1,777), you only have to pay the full excess, or $1,000 (€888). The car rental company covers the rest.

What Car Rental Insurance Should I Buy for My Iceland Trip?

What car rental insurance you buy for your Iceland trip will depend on where you’re going in Iceland and at what time of year.

Reykjavik, Golden Circle, South Iceland

If you’re travelling around Reykjavik, the Golden Circle and/or South Iceland, you’ll find that the main, basic insurance (meaning your CDW and TPL insurance) that your car rental provider offers should be enough. This is because the chances of gravel hitting your car from gravel roads, or getting stuck anywhere that could damage your undercarriage are slim. So, while anything could happen, you should be fine with just that CDW and TPL insurance.

However, for the South Coast, it is advisable to also purchase the SAAP insurance since it is quite common to have strong winds in that region and you will be better covered against possible damages.

If you do feel like you need a little extra protection, you might consider gravel protection and/or a super collision damage waiver. 

For more information on travelling around the Golden Circle, see our full Golden Circle guide. For more information on travelling along Iceland’s South Coast, check out our South Coast self-driving trip itinerary. 

The Ring Road, North Iceland, or a Winter Trip

If you’re visiting some of Iceland’s more remote spots, like North Iceland, or travelling along the Ring Road, or visiting during the winter months, it’s generally advised that you purchase some better insurance than you would if you were just sticking around Reykjavik. In these areas and during the winter, when the weather is more volatile, it’s smart to have your gravel protection, sand and ash protection, and a super collision damage waiver. tyre insurance can also come in handy.

The Icelandic Highlands and Westfjords 

Because the Highlands and Westfjords are filled with gravel roads and F-roads (learn more about Iceland’s F-roads in our full guide and the Westfjords in this article), you’ll want to purchase all available insurance that your car rental company offers. Just note — the Icelandic Highlands include a lot of river crossings and there is no insurance that will protect you from damage caused by these river crossings. So, cross at your own risk. 

Is all of this really necessary? 

Yes, it does seem like quite a lot of insurance. However, it’s important to understand that Iceland’s road conditions are so much different than those you’ll find in other countries. Nearly half of the roads throughout the country are unpaved. They’re narrow, rocky and filled with ash and sand. Damage is incredibly likely, whether it’s to your paint job, your windshield or your tyres. Having insurance not only will protect you from this damage, but also give you greater peace of mind as you travel around the country. 

How Much Should I Budget for My Iceland Car Rental Insurance? 

The average prices for car rental insurance in Iceland are…

• CDW: Included in the cost of your rental
• TP: Included in the cost of your rental (with Lava Car Rental)
• SCDW: around 2,000 ISK/day or $15 USD per day or 13.5 EUR
• SAAP: around 1,500 ISK/day or $11 USD per day or 10 EUR
• GP: around 2,000 ISK/day or $15 USD per day or 13.5 EUR
• TIP: 1,000 ISK/day or $7 USD per day or 6 EUR

When you package together your various insurances, you can usually save some cash. The average cost of a car insurance bundle is 3,000–6,000 ISK per day, or 20–40 EUR per day, or $22–$45 USD per day. 

What if I Decline My Car Rental Company’s CDW Insurance?

You can choose to decline your car rental company’s CDW coverage in Iceland, but, if you do so, you’ll be responsible for any damage caused, up to the full cost of the vehicle. Some travellers do choose to decline the car rental company’s CDW coverage in favour of their own credit card’s car rental insurance, however. 

If you do this, we recommend that you ensure you fully understand what exactly your credit card’s car rental insurance covers. Then, if you do decide to use your credit card’s car rental insurance, you can just let your car rental provider know, and they’ll ask you to sign a waiver at the time of your car rental pickup. 

If you decline the CDW insurance in Iceland in order to use your credit card’s car rental insurance, and then you do damage the vehicle during your trip, you’ll be required to pay a certain amount upfront, when you drop off the rental car. Then, you’ll receive an additional invoice for the full total of damages afterwards. At that point, you will need to pay the invoice and then ask your credit card company to refund you.

What’s the Best Car Rental Insurance in Iceland?

If you want the most coverage possible while in Iceland, you’ll want to purchase a full insurance package that includes all of your extra insurance that you would otherwise need to purchase separately. 

All car rental reservations made through Lava Car Rental's website come automatically equipped with all of the insurance below and a 150,000 ISK self-risk or deductible (equal to approximately $1050 USD or 980 EUR as per the current exchange rate):

• SCDW: Super Collision Damage Waiver
• GP: Gravel Protection
• TP: Theft Protection 

However, if you want even more coverage, you can purchase a further “full protection” insurance package that reduces your self-risk fee or deductible to nothing. No matter what the damage, you won’t need to pay anything extra. 

At Lava Car Rental, we offer the option to upgrade to our Full Protection package, our most complete package that includes all the previous insurance (SCDW, TP, GP) plus the extra insurance below without self-risk for a worry-free trip:

• Sand and Ash Protection (SAAP)

The Sand and Ash Protection (SAAP) covers the vehicle for damage to the paint, windows or plastic parts caused by volcanic ash and sandstorms. No self-risk.

• Tyre Protection (TIP)

The Tyre Protection (TIP) covers the tyres and the wheels replacements. In case of a flat tyre, the renter is responsible for transporting the vehicle to the nearest tyre shop. No self-risk.

Staying Safe While Driving in Iceland 

Regardless of which insurance you purchase for your Iceland trip, it's important to follow the rules of the road and remain as safe as possible while driving around the island. Follow Iceland’s road regulations, watch your speed limits, don’t drive off-road and don’t drive in water or rivers. Additionally, only drive a 4x4 vehicle on Iceland’s F-roads (driving a 2WD vehicle on these roadways is illegal). 

Watch the weather and road conditions, and don’t drive if you feel unsafe. If you’re out driving and strong weather picks up, pull over to the side of the road and wait it out. 

Don’t leave valuable items unattended in your car and lock your car when you leave it. 

However, even if you follow all of these safety precautions, there are certain things that are just out of your control, such as vehicle theft, sand and ash damage, and collisions with other vehicles. In these cases, your insurance can provide that extra protection you need. 

Ready to Get on the Road?

Once you have the right rental car for you (we have plenty of guides to help you choose your vehicle, over on our blog, and you can also check out our full lineup of 2WD and 4x4 vehicles), as well as the best insurance for when and where you’re travelling, you’re ready to hit the road. Picking the right car rental insurance for your Iceland trip is just the right thing to give you peace of mind and the extra protection that you, your passengers, your car and your wallet need. 

Want to learn more about the rental insurance that Lava Car Rental offers? You can find the full details and terms and conditions on our insurance page. 

Questions or concerns? Reach out to a member of our knowledgeable team for more info on what our insurance packages offer, as well as what package would be most suitable for your trip. 

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